Q – Hi, please read the discussion below and prepare a Reply to this discussion post withcomments that further and advance the discussion topic.
Please provide the references you used.
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Word limit: 50 to 70 words please do not exceed the limit.
Discussion
Job Order Costing
Particularly, the purpose of cost accounting systems is to measure, record, and report the costs
of products. Management uses such costs to set prices, control operations, and prepare
financial statements (Warren & Tayler, 2018). In this regard, job order costing is a cost
accounting system that allocates product costs for every product quantity manufactured. The
manufactured quantities are referred to as jobs. Manufacturing businesses that manufacture
batches of similar products can benefit largely from job order cost systems. Therefore, a job
order cost system helps in recording and summarizing manufacturing costs by jobs (Warren &
Tayler, 2018). The manufacturing process starts with materials inventory, work in process,
finished goods, and then the cost of goods sold. Each of these flow processes is assigned costs
using a job order cost system. Usually, machine costs are distributed across different jobs. Thus,
a business can evaluate its expenditure on fixed assets, which now helps in ascertaining the
amount of overhead allocated to every asset and appropriate it fairly between manufacturing
jobs.
As detailed by Ingram (2019), the utilization of job order costing allows the management to
measure profits earned on individual jobs. This is advantageous as it helps ascertain whether it
is desirable for the manufacturing company to make the products in the future, especially for
highly custom-made products. The management is also able to determine the value of
production costs that will be used during a manufacturing process. Furthermore, the
management can accurately keep track of the performance of individuals and teams when it
comes to cost control, efficiency, and productivity. The efficient use of a job order cost system
ensures that a manufacturing business can come up with competitively low prices and still be
profitable. This means that a job order costing system is an important tool for making datadriven decisions. As a cost accounting system, it provides a valuable database that holds the
details and costs of jobs, which can be utilized as empirical data for businesses to evaluate their
own efficiency and lower costs through changing processes.
The three main components of production costs are direct materials cost, direct labor cost, and
applied factory overhead cost (Warren & Tayler, 2018). The direct material costs are incurred
during the purchase of the materials used for the manufacturing process, while direct labor
costs are the costs of the employees who are involved in the production process. Finally, the
factory overhead costs entail any other manufacturing costs besides direct labor and materials.
These cost elements include all the expenses that are incurred during the production of an item
and, therefore, are a key component of the costs of goods manufactured. This means that the
accumulated production costs are debited into the work-in-process inventory account in order
to determine the costs of goods manufactured. The management must determine the opening
and closing balances of the inventory account in addition to the actual direct material and direct
labor costs, as well as the estimated manufacturing overhead costs for the purpose of
calculating the costs of goods manufactured.
References
Ingram, D. (2019). Advantages & Disadvantages of Job Order Costing & Process Costing. Small
Business/Accounting & Bookkeeping/Process costing. Retrieved from
https://smallbusiness.chron.com/advantages-disadvantages-job-order-costing-process-costing3082.html
Warren, C. S., & Tayler, W. B. (2018). Managerial accounting. Cengage Learning.
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